The wide use of different alternative fuels (AL) has led to challenges to the internal combustion (IC) engine tribology. To avoid any unpredicted damages to lubrication joints by using AL fuels, this study aims to accurately evaluate the influences of alternative fuels on the tribological behavior of IC engines. Recent achievements of the acoustic emission (AE) mechanism in sliding friction provide an opportunity to explain the tribological AE responses on engines. The asperity– asperity–collision (AAC) and fluid–asperity–shearing (FAS) mechanisms were applied to explain the AE responses from the piston ring and cylinder liner system. A new adaptive threshold–wavelet packets transform (WPT) method was developed to extract tribological AE features. Experimental tests were conducted by fueling three fuels: pure diesel (PD), biodiesel (BD), and Fischer–Tropsch (F–T) diesel. The FAS–AE indicators of biodiesel and F–T diesel show a tiny difference compared to the baseline diesel using two types of lubricants. Biodiesel produces more AAC impacts with higher AAC–AE responses than F–T diesel, which occurs at high speeds due to high temperatures and more particles after combustion than diesel. This new algorithm demonstrated the high performance of using AE signals in monitoring the tribological impacts of alternative fuels on engines.